We missed this earlier: In a June 24 notification, the Reserve Bank of India warned banks and Non-Banking Financial Companies working with digital lending platforms over non-transparency, and violation of extant guidelines on outsourcing of financial services and Fair Practices Code. It issued a set of guidelines to banks and NBFCs that work with digital lending platform on transparency and customer disclosures.

“Of late, there are several complaints against the lending platforms which primarily relate to exorbitant interest rates, non-transparent methods to calculate interest, harsh recovery measures, unauthorised use of personal data and bad behavior.”

The RBI observed that lending platforms do not disclose the bank or NBFC that they partner with, because of which customers are unable to access the grievance redressal methods available to them under the regulatory framework. “Although digital delivery in credit intermediation is a welcome development, concerns emanate from non-transparency of transactions and violation of extant guidelines on outsourcing of financial services and Fair Practices Code, etc. issued to banks and NBFCs,” the RBI said. Guidelines issued by the RBI in 2006 lay down a code of conduct and risk management with regard to outsourcing of financial services, including loans, by banks.

Banks and NBFCs that engage digital lending platforms need to follow these instructions:

  1. Disclose in their websites the names of the digital lending platforms engaged with them as agents
  2. Digital lending platforms need to disclose to the customer the bank or NBFC on whose behalf they are interacting with the customer
  3. Before the loan is executed, the sanction letter will be issued to the customer on the letterhead of the bank or NBFC
  4. A copy of the loan agreement, along with a copy of all enclosures quoted in the loan agreement, will be provided to the customer
  5. The bank or NBFCs need to ensure oversight and monitor the platform
  6. They have to make “adequate efforts” to create awareness about the grievance redressal mechanism

The RBI added that any violation by banks and NBFCs (including NBFCs registered to operate on ‘digital-only’ or on digital and brick-mortar channels of delivery of credit) “will be viewed seriously”.